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Lenders are,after all,looking to see evidence that borrowers have a “net monthly surplus” left in their household budget after their living expenses are deducted from their income. So,the institute takes a survey of household expenditure last conducted by the Bureau of Statistics in 2015-16,and slices and dices it for different households – by income,location and family composition – and adjusts it for inflation over time.

Crucially,however,the HEM does not provide average – or even median – figures for expenditure. Rather,it establishes a benchmark of household costs set at the median level of spending for non-discretionary items,such as food and electricity,and at the 25th percentile for household spending on more discretionary purchases,such as eating out and trips to the cinema. (It also excludes altogether a host of other expenditures,including private school fees,strata fees and life insurance,which lenders are supposed to inquire about separately.)

In his decision in favour of Westpac,Justice Perram effectively declared the HEM an entirely reasonable level of frugality to which new home buyers could be expected to aspire and adhere to immediately. The judge argued:“I may eat wagyu beef every day,washed down with the finest shiraz,but,if I really want my new home,I can make do on much more modest fare.”

Indeed:“Knowing the amount I actually expend on food tells one nothing about what the conceptual minimum is. But it is this conceptual minimum which drives the question of whether I can afford to make the payments on the loan.”

Notably,Perram himself went on to bypass any notion of conceptual minimum when providing his summary of the performance of key witnesses in the case. “On what was otherwise a somewhat torpid afternoon,” he recounted,one witness “was unmoved by the experience which he appeared to regard with a chilly air of detached indifference”.

Perram’s decision – upheld against later appeal by the Federal Court – unleashed a blast of fresh air through banking circles.

While lenders are still required to make reasonable inquiries about your living costs and to ask to see some evidence,they can now opt to default to the HEM benchmark figure (plus any excluded expenditures such as private fees and strata fees) when assessing a potential borrower’s capacity to pay. Bottom line:you can probably borrow more.

About the same time,in a rather unfortunate coincidence,Australia’s prudential regulator also decided to relax a so-called “serviceability buffer” which lenders must apply when stress-testing a borrower’s capacity to pay. Prior to this,banks made sure you could afford your loan at an interest rate of 7.25 per cent. After the change,they only had to apply a buffer of 2.5 percentage points above the prevailing interest rate. If you could still produce a “net monthly surplus” of some amount in that scenario,you walked away with your loan. (Banks also applied a “floor” interest rate,which was often not much higher.)

Adding fuel to this borrowing bonfire,of course,was the Reserve Bank,which slashed the official cash rate during the pandemic to just 0.1 per cent in November 2020.

In the time between this and the serviceability buffer being belatedly restored to 3 percentage points in October last year,155,431 first home buyers stormed the market,Bureau of Statistics figures show. And they did so with a Reserve Bank governor telling them not to expect rates to rise until 2024.

Instead,in a matter of mere months,Governor Philip Lowe is poised to push these borrowers straight up to and probably beyond their capacity to pay their loans. Such households will have no choice but to slash expenses dramatically from an already extremely frugal estimate,or to find ways to boost their income.

If not,they will be pushed into a “net monthly deficit” and either have to draw on savings or confess to the bank they are unable to make their loan payments. They will have to either enter a financial hardship arrangement or begin to wind up their loans. If they do try to discharge their loans by selling,they will probably face a situation of “negative equity” where their home is now worth less than they paid for it.

It may only be a relatively small number,but these households are set to feel the pain inflicted by a prudential regulator that slashed their serviceability buffer and a legal and banking system that decided it was OK to let borrowers borrow to the max based on a tight “conceptual minimum” of living expenses.

Even if they don’t lose their homes,a significant cohort of stressed borrowers is about to emerge with very little fat to cut in their budgets as mortgage rates rise.

It’s beef mince and tap water from now on.

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